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With the « Latitudes » section, 90° changes scale to decipher international law. In this new episode, our GPS indicates 23° 42′ 00″ North, 90° 22′ 30″ East: heading to Dhaka, the capital of Bangladesh.
This article is the first of a two-part series.
The mood is not one of tourism, but of contemplation as we approach Rana Plaza. Eleven years ago, this building located west of the Bangladeshi capital hosted the subcontracting of major names in the textile industry. On 24 April 2013, the gigantic factory building collapsed. The toll was terrible: 1,132 dead and more than 2,500 injured. Behind the tragedy, the deplorable working conditions and the glaring lack of vigilance by the factory owners and local administration quickly emerged.
Vigilance, a duty
The shock of the collapse created a movement favorable to formalizing legislation that holds companies accountable for risky human, social and environmental behaviors. To achieve this, vigilance must become a duty.
The aim of the duty of vigilance? To require companies exceeding certain thresholds to be vigilant about the risks of human rights and environmental violations throughout the value chain, including foreign subcontractors.
Nearly a decade later, several European countries have either already armed their national legal arsenal (France, Germany) or are in the process of adopting so-called « due diligence » laws (Spain, the Netherlands, etc.). In the interests of harmonization, the European Commission presented the European Parliament and the Council, on February 23, 2022, a proposal for a directive on corporate due diligence in sustainability, adopted in a modified version by the Parliament on April 24, 2024. This text will align with the information publication requirement posed by European Directive No. 2022/2464, known as the « CSRD » (Corporate Sustainability Reporting Directive).
Going beyond self-regulation
Before this tragedy, the first forms of regulation were based on so-called soft law texts, whose non-binding nature sparked debate: the OECD’s guidelines for multinational companies, the United Nations’ guidelines on business and human rights, charters …
Over the years, obligations have been strengthened by implementing corporate social responsibility (CSR) standards, especially for financial companies (Sapin 2 law, declaration of extra-financial performance, climate and resilience law, etc.). This responsibility gradually imposed by law results from awareness of the limits of soft law and self-regulation promoted by groups whose footprint is sometimes larger than that of states. As early as the 1930s, companies adopted codes of good conduct, but the control of their compliance and the implementation of sanctions in case of supply chain failures remained frequently ineffective.
Given the inadequacy of self-regulation, the next logical step was to establish a binding standard at a higher level than companies, that is, at the state and European Union level, by applying a liability regime based on a legal duty of vigilance.
As a result, the possible consequences of a violation are no longer limited to settling a fault in the performance of the contract, but to preventing and potentially compensating victims whose damage could have been avoided or limited if the company had been vigilant. While companies already had an incentive to organize and control the reliability of their partners for financial security reasons, the duty of vigilance creates, as its name suggests, a genuine duty uniformly applicable regarding fundamental human rights and the environment.
A European duty of care
On April 24, 2024, the European Parliament adopted the proposal for a directive on corporate due diligence in sustainability. This directive aims to apply to any company exceeding certain thresholds, whether European or non-European but operating within the European Union. These thresholds were the subject of intense discussions.
Although the text initially aimed to affect companies with more than 500 employees and over 150 million in turnover, a threshold that the Parliament’s JURI Committee had lowered, permanent representatives of Member States feared that the text would affect too many companies and blocked the text, which had previously been the subject of a trialogue agreement in December 2023.
To overcome this deadlock, the thresholds were raised: from now on, the directive will gradually apply to European companies and parent companies with more than 1,000 employees and a worldwide turnover of more than €450 million, as well as to franchises in the EU with a worldwide turnover of more than €80 million if at least €22.5 million has been generated by royalties. They will also apply to non-EU companies, parent companies and franchises reaching the same turnover thresholds in the EU. With these new thresholds, 5,400 companies would be affected, compared to 16,000 in the European Commission’s initial proposal, according to the NGO Global Witness.
The companies concerned will also have to adopt and implement a transition plan making their business model compatible with the Paris Agreement objective of limiting global warming to 1.5°C.
The text imposes a duty of vigilance on companies regarding their own activities but also those of their subsidiaries and the operations carried out in their « chains of activity». This concept has also been modified from its initial version: it covers the activities of a company’s upstream business partners in connection with the production of goods or the provision of services by the company, including the design, extraction, sourcing, manufacture, transport, storage and supply of raw materials, products or parts of products and the development of the product or service, and the activities of a company’s downstream business partners in connection with the distribution, transport and storage of the product, where the business partners carry out these activities for the company or on behalf of the company.
As a recurring point of tension in the text’s negotiations, financial services are de facto excluded from the scope of the directive, at least as far as the downstream part of the company’s activities is concerned. A review clause is nevertheless provided for. The European Commission will have to present a report to the Parliament and the Council on the need for additional requirements specific to financial services.
Under the new text, the companies concerned will have to publish relevant information on the policies, processes and due diligence activities they have adopted to identify and remedy actual or potential negative impacts. In this respect, European Directive 2022/2464 on the publication of sustainability information already provides for the establishment of information standards that the companies concerned can use to partially meet their vigilance obligation.
Keeping up to date
This text was the subject of fierce debate, and for good reason, the stakes are high: requiring companies, both national and transnational, not only to monitor respect for human and environmental rights within their group but also by their commercial partners. It is part of a body of European legislation that seeks to regulate the activities of non-European companies benefiting from access to the European market, such as the IA Act, the Data Act, the Digital Service Act, the Digital Market Act, the Digital Governance Act and the General Data Protection Regulation.
Once the text has been published in the Official Journal of the European Union, Member States will have two years to transpose it into national law. It will complement existing legislation in this area, particularly in France.
Stay tuned on 90° for the second part of this two-part article.
